POINT OF VIEW
By Jeanne L. Reid

(MONEY Magazine) – Why we need the IRA deduction

The 1986 tax law stole the deduction for Individual Retirement Account contributions from 8 million Americans. The victims: taxpayers covered by pensions who earn incomes of more than $35,000 ($50,000 for married couples filing jointly). Eliminating their deduction was a shortsighted stopgap that undermines long-term security for millions of citizens, inhibits savings growth and capital formation and could ultimately cost the government far more than the interim revenue gains. MONEY believes that when Congress reconvenes in January, it ought to give back the $2,000 IRA deduction to all working Americans. Such a move would have broad popular support (see the poll results on page 147). Still, getting the write-off into law will be an uphill battle in the absence of any organized campaign for it. ''Congress is unlikely to bring back the deduction because of all the alleged concern about the deficit,'' says Thomas Veal, a Washington, D.C. senior manager at the Touche Ross accounting firm. The Republican presidential platform only vaguely states its support for ''IRA deductibility.'' And Michael Dukakis flatly told MONEY that he opposes a full write-off. ''The Tax Reform Act of 1986 was a major step forward in plugging a lot of loopholes,'' he said. But encouraging Americans to provide for their own retirement is not a loophole. It's a farsighted approach to lessen the taxpayer dependence on a federal government that is increasingly strapped for cash. Congress scaled back the IRA deduction to help pay for Reform's lower tax rates. The Joint Tax Committee estimated that from 1987 to 1991, the Treasury will get $23.8 billion from newly taxable IRA contributions. Today many analysts doubt that estimate in part because some people have switched to pretax, 401(k) company savings plans. Indeed, IRA contributions fell 37% in 1987, down from $38.3 billion. Would a universal IRA deduction raise the nation's abysmal 3.7% savings rate? Quite likely. An analysis by the the National Bureau of Economic Research, an academic consortium based in Cambridge, Mass., found that two- thirds of IRA contributions since 1982 represented new savings. The savings rate in Canada is 8.1%, at least partly because of the country's Registered Retirement Savings Plan, an account similar to deductible IRAs. If you favor restoring the write-off, send a letter to Congressman Dan Ros- tenkowski, House Ways and Means Committee, 1102 Longworth House Office Bldg., Washington, D.C. 20515 and Senator Lloyd Bentsen, Senate Finance Committee, 205 Dirksen Senate Office Bldg., Washington, D.C. 20510. If Bentsen is elected Vice President, then write to his likely successor as Finance chairman, Senator Spark Matsunaga. Send copies of the letter to your own senators and representative as well.